COMMODITY STOCKS: PRICES AND TIPS

About The Commodity Market

As long as the risks inherent to commodity trading are understood, it can be a very lucrative opportunity. Make calculated decisions.

How to Trade Commodities – 3 Strategies

Before you begin trading commodities, you should have some well thought out and consistent strategies that will dictate under what circumstances you will buy, sell and limit your losses. Here are some big ones:

Trading Breakouts

This strategy holds that a market can’t continue its trend without making new highs or new lows. This one works best when commodities are trending strongly. Whether the trend is up or down doesn’t matter, as you are buying new highs and selling new lows,

Fundamental Trading Strategy

Fundamental analysis is a means of analyzing commodities and simply trying to predict where the prices of commodities should be trading and what they will do in the future. This one is not recommended for a new commodity trader, since opinions can easily be swayed.

Range Trading Strategy

According to this strategy, you would look to buy a commodity after it has experienced a lot of selling and becomes oversold. Once a commodity has had a long rally and becomes overbought, you would look to sell it.

How to Buy Commodities

Commodity investing is extremely volatile – but can definitely work in your favor. In a broad investment portfolio, a small amount of commodities (between 5-10%) can offset risks associated with stocks, bonds and cash. A more prudent investor would own both the physical commodity as well as shares of the resource producers.

Being a Commodity Trader

There are two types of investors involved in commodity trading: hedgers and speculators.

Hedgers

These would be big corporations that depend on a consistent price for basic materials. A good example is a commercial farmer. The market values of   wheat   and other crops fluctuate constantly as   supply and demand   for them varies . The farmer would hedge his exposure to wheat prices. By doing so, he no longer cares whether the current price rises or falls because he is guaranteed a price by the contract.

Speculators

As a speculator, you are not actually purchasing these items. This is the type of investor you would be. Speculators purchase contracts for items to later be sold, whenever they feel that the price of a particular commodity is on its way down.